PUHCA was enacted in 1935 and was aimed at breaking up the unconstrained and excessively large trusts that then controlled the Nation's electric and gas distribution networks. The Act was passed at a time when financial pyramid schemes were extensive. These schemes allowed operating utilities in many areas of the country to come under the control of a small number of holding companies, which were in turn owned by other holding companies. These pyramids were sometimes 10 layers thick.
Before PUHCA, almost half of all electricity generated in the United States was controlled by three huge holding companies, and more than 100 other holding companies existed. Their size and complexity made industry regulation and oversight control by the States impossible. After the collapse of several large holding companies, the Federal Trade Commission conducted an investigation after which it criticized the many abuses that tended to raise the cost of electricity to consumers. the Securities and Exchange Commission (SEC) also investigated and publicly charged that the holding companies had been guilty of stock watering and capital inflation, manipulation of subsidiaries, and improper accounting practices. Under PUHCA, the SEC was charged with the administration of the Act and the regulation of the holding companies. One of the most important features of the Act was that the SEC was given the power to break up the massive interstate holding companies by requiring them to divest their holdings until each became a single consolidated system serving a circumscribed geographic area. Another feature of the law permitted holding companies to engage only in business that was essential and appropriate for the operation of a single integrated utility. This latter restriction practically eliminated the participation of nonutilities in wholesale electric power sales. The law contained a provision that all holding companies had to register with the SEC, which was authorized to supervise and regulate the holding company system. Through the registration process, the SEC decided whether the holding company would need to be regulated under or exempted from the requirements of PUHCA. The SEC also was charged with regulating the issuance and acquisition of securities by holding companies. Strict limitations on intrasystem transactions and political activities were also imposed.